DSIJ Mindshare

Reliance Jio's launch to create ripples in the telecom industry

Much hyped about and awaited Reliance Jio's launch is expected to bring cheers to a lot of consumers for sure, as in the market the buyer will be able to choose from multiple lucrative offers from various Telecom players at a much better bargain. Reliance Jio launch may not be good news for several of the investors and shareholders of other Telecom companies as the launch is expected to trigger a price war between the rivals. Price war environment is not always a palatable situation for the stakeholders including the shareholders as the margins get impacted and the share prices react negatively to such a business environment.

What has happened prior to the Reliance Jio launch, is only a precursor to what may follow suit, post launching of Reliance Jio services. Airtel has already slashed data tariffs for corporate customers as per media reports. Airtel is now offering bigger data bundles based on usage pattern. The rates are believed to be slashed by as much as 60 per cent for corporate customers as per the media reports. 

Investors as well as the whole telecom industry is keeping a close eye on the customer acquisition strategy that Reliance Jio may adopt, as it is widely expected that Reliance Jio for acquiring new customers will be offering freebies. The rivals naturally will be strategising to retain their customers by slashing tariff rates. State run BSNL is also expected to be hit by the Jio launch.

On Wednesday this week BSNL announced a national unlimited 3G mobile data plan for Rs 1,099 and also increased the data usage limit to 100 per cent in few of its existing plans. 

Reliance Jio will be offering 90 days free unlimited data and phone call service; and to counter the same, rivals like Airtel, Vodafone & Idea have already increased data usage limit in some of its plans by up-to 67 per cent.

If we look at the performance of listed entities in the telecom space, it unfolds a saga of under-performance, with Idea Cellular being the worst performer by delivering negative returns of 11.91 per cent ( 1 month), 13.96 per cent ( 3 months) and 37.67 per cent (1 year). 

Airtel not being far behind has also clocked negative returns: 7.1 per cent (1 month), 2.12 per cent (3 months) and 1.35 per cent (1 year). 

Reliance Communications on the other hand has performed better in relative terms, with negative returns of 0.49 per cent ( 1 month) and gaining by almost 8.01 per cent over a 3 month time frame. Over a 1 year period the stock has gained by almost 1.28 per cent. 

Post launching of Reliance Jio one can only extrapolate the damage the disruptive strategies of the world's largest start up can cause to the rivals. All said and done customers might relish the war between the Telecom giants and smart bargain hunters (consumers) may stand to gain even though the Telecom giants may be hit as far as profitability is concerned.

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